The dollar was balanced on both a technical and fundamental basis this past session. A jump in the risk trend torch-bearer S&P 500 encouraged the Euro and New Zealand dollar to gain ground against the low-yield currency. At the same time, underlying investment conditions (yield and volatility) didn’t reflect the same improvement for the FX and capital market crowd – which helped keep the dollar’s strength against other major counterparts. Yet, once again, the greenback’s bearings once again truly defined by momentum in more aggressive counterparts. EURUSD was driven higher by balance sheet chances on the ECB side while USDJPY surged thanks to the surprise resignation of an important monetary policy member (more on both of those themes below). From a dollar’s own fundamental ranks, the ISM service sector survey printed near consensus and President Obama’s call to delay the automatic spending cuts on March 1 isn’t actionable. We need a committed risk move.

Japanese Yen Recovery Deferred Again by Surprise BoJ Resignation

The USDJPY’s and other yen crosses’ continued advance is either extreme coincidence or impeccable planning. Every time the yen nears a point of reversal where initial technical breaks align to fundamental shifts, a deft (though generally minor) move is made in commentary or policy that puts the yen back on its path of incredible depreciation. Of course, there is fundamental grounding for the Japanese currency to see a substantial depreciation. Most notably, traditional measures of risk appetite have held impressively buoyant (leveraging the carry trade aspect) and there is a concerted move towards expansive stimulus on the monetary policy side. However, the measures taken to this point for an open-ended program from the Bank of Japan have only amounted to relatively modest one-off asset purchases and a vow to adopt a Fed-like monthly purchase effort at the start of 2014. After a 12-week USDJPY rally, vows for more has lost its luster…and policymakers may recognize it.

Over the past weeks, each time we have come to the point where the market looks like it will bleed off some of its aggressive yen short position; something has popped up to spark concern of a more aggressive easing on the currency in the future. From Prime Minister Abe’s push for a 2 percent inflation target to unlimited easing efforts to BoJ submission to an open-ended program a year in the future, it escalates each time. Well, with the program in place where can the yen devaluation threat be escalated? Possibly moving up the timeline for the adoption of the 13-trillion-yen-per-month stimulus program is the last vestige of manipulation. This concern has loitered in the background as BoJ Governor Shirakawa’s retirement in April neared. The only thing that could add fuel to this fire would be to show a possible replacement that is deadest on moving up and expanding the stimulus effort or moving up the time frame for the swap. We were met with the latter this past session. Shirakawa announced his intention to step down at the same time as his Deputy Governors - on March 19. On to the next catalyst. If it’s risk, we may finally reverse.

Euro Retraces Lost Ground, Though Fundamentals Lack ConvictionFollowing its second biggest drop in six months versus the dollar, the biggest slide versus the Swiss franc in 13 months and heaviest drop against the British pound in 15 months; the Euro retraced much of its intense losses this past session. The rebound certainly held an element of market-wide investor sentiment to it. Monday, European equity indexes extended their plummet and threatened to shake confidence across the financial world – and thereby invite doubt and second guessing upon the euro once again. Yet, with the S&P 500’s refuse to succumb to the slip in Asian and European sessions that threat was deferred.

The euro’s bearings this past session, though, were more tailored to traditional fundamentals. Bringing the focus back to the currency wars, the ECB reported its balance sheet dropped to an 11-month low with lending to banks collapsing €141 billion to €1.02 trillion this past week. Furthermore, foreign reserves dropped €2 billion to €216.7 billion. A stark contrast to the direction of the Fed’s stimulus path. Elsewhere, French President Hollande seems to have started the push for FX intervention. The official remarked that interests in the exchange rate don’t stop with the ECB and governments should have a say. He has called for a rate policy. Let’s see if the ECB defuses the situation with a move of its own.

Following the sterling’s universal advance on Monday, the currency took a dive on the subsequent session. This drop has put GBPUSD in the awkward position of breaking a technical confluence of a Fibonacci retracement and four-year rising trendline – but more importantly, it doesn’t come with a lasting fundamental drive to transition that break to momentum. One side of this pound move was a recovery from the euro, which reversed the safe haven flows to London. More threatening though was the NIESR group’s downgrade on 2013 GDP (to 0.7 percent).

Australian Dollar: Interest Rate Outlook Little Changed by Dovish RBA

The fundamental run continues for the Australian dollar this morning. Remarks following the RBA’s rate decision yesterday that the policy authority was still leaning towards more cuts in the future didn’t seem to alter the market’s existing expectations for easing (as measured through swaps). However, the drop in retail sales in December and the 4Q printed today has pushed AUDUSD to its lowest level this year.

New Zealand Dollar Faces Another Possible Volatility Hit in Jobs Data

Positioned provocatively below the 0.8500-level that has capped bullish ambitions since September 2011, NZDUSD is looking for a catalyst to either encourage a meaningful break and move higher or committed reversal. The upcoming 4Q employment change and jobless rate figures are capable of providing short-term volatility. However, for a risk-sensitive currency, we need commitment in underlying speculative interest.

Gold Congestion Tightens as Traders Seek New Stimulus News

A failed attempt to overtake the 50-day moving average and upper band of a descending price channel sent gold back to an ever-constricting range. This past session, news that the standing BoJ Governor would step down earlier and that France’s President was trying to put push the euro into the currency war added a fundamental element to gold’s appeal – but not yet enough to offset the steady dollar.

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